Streaming Netflix Earnings Trade Ideas

• Posted by Greg Harmon
• on January 22nd, 2014

Netflix, $NFLX, has been trending lower in a pullback since Christmas Eve. Not yet at a 23.6% retracement of the move higher from the 2012 low, it is finding some support just under the 100 day Simple Moving Average (SMA). The Relative Strength Index (RSI) is bearish and bouncing at the technically oversold level as the Moving Average Convergence Divergence (MACD) indicator is starting to level and sees the histogram improving. Is the worst over?The bias is lower in the chart right now with a Measured Move lower to 280 on a break under 330. Support comes lower at 325 and 316

followed by 300 and 286. Resistance higher comes at 347 and 353 followed by 360, 368 and 380 before the prior high at 389 on the last earnings release. The reaction to the last 6 earnings reports has been a move of about 19.52% on average or $65 making for an expected range of 267 to 397, wow. The at-the money January weekly Straddles suggest a much smaller $34 move by Expiry Friday with Implied Volatility at 166% above the February at 54%. Short interest is elevated at 10%. There were sellers of the 365/360 Put Spread yesterday and Open Interest seems pretty well spread out for this week.

Trade Idea 1: Sell the January 24 Weekly 275/400 Strangle for a $1.90 credit. A very wide range for a 60bp return.

Trade Idea 2: Buy the February 350/375 Call Spread for $7.00.

Trade Idea 3: Buy the February 350/375 Call Spread and sell the January 31 375 Call for $3.25. This has exposure if the stock moves over 375 by Friday.

Trade Idea 4: Buy the January24/February 375 Call Calendar for $3.75.

Trade Idea 5: Buy the January 327.5/310 1×2 Put Spread for free. This has exposure on a move under 292.5 by Friday.

I like #5 best, with #3 next. Since giving this to subscribers at 1:10pm, I traded #5 for a 50 cent credit.

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